Now that I am self-employed, I have been paying my estimated income taxes each quarter and I seem to be paying an awful lot! What is the deal?
When somebody else employs you, you have a certain amount of money deducted from your paycheck for Social Security tax and Medicare. (This may be referred to as FICA.) As an employee, you only pay one-half of the total employment tax. Your employer pays the other half. When you are self-employed, you are both the employer and the employee. So you have to pay both parts of that whole tax, but you can get deduct half of it when you calculate your adjusted gross income on your Form 1040.
When somebody else employs you, you have a certain amount of money deducted from your paycheck for Social Security tax and Medicare. (This may be referred to as FICA.) As an employee, you only pay one-half of the total employment tax. Your employer pays the other half. When you are self-employed, you are both the employer and the employee. So you have to pay both parts of that whole tax, but you can get deduct half of it when you calculate your adjusted gross income on your Form 1040. Your future Social Security benefits will be based on how much you pay into the Social Security trust fund. To figure how much you get, the Social Security Administration keeps track of how much you contribute from the information on your Schedule SE each year.
Related Questions
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